Article

Note: China Metallurgy Import & Export Shandong Company (Buyer) contracted with the MT NEWMAN Joint Ventures (Seller) to import 60,500 M/T iron ore. Payment was made by Commercial LC issued by Bank of Communication, Shandong Branch (Issuer). The goods were shipped by the vessel Stone Gemini (Vessel) owned by NAVALGALAXY Shipping Limited (Carrier). Vessel arrived in Qingdao. Because Buyer had not received the original B/L from Issuer, Buyer requested discharge of the goods against a steamship guarantee issued to the Master. The Master accepted the steamship guarantee and discharged the goods. The guarantee provided that it was subject to English law.

Seller presented documents under the LC to WEST-PAC Banking Corporation (Negotiating Bank) which acted as negotiating bank and paid Seller. Negotiating Bank then forwarded the documents to Issuer, but Issuer refused the documents, claiming discrepancies between the documents and the LC. The documents were returned to Negotiating Bank. Negotiating Bank bargained with Buyer for the payment of the goods and Buyer agreed to pay US$1,754,611.95 but only paid a total amount of US$699,970.

Negotiating Bank then sued Carrier in District Court of the New South Wales Australia. The Vessel was arrested but was later released when sufficient security was provided. The court ruled in favor of Negotiating Bank, concluding that Carrier should compensate Negotiating Bank for US$1,316,793.38. Carrier paid all the amounts in judgment with the interest of US$36,340.54.

When Carrier tried to get reimbursement from Buyer under the steamship guarantee, Buyer refused to pay. Therefore Carrier sued Buyer in Qingdao Maritime Court for US$2, 042, 267.17 for losses, interest, and litigation fees in the Australian litigations. The court ordered Buyer to indemnify Carrier for a total amount of US$1,927,764.76, including the losses determined in the Australian judgment US$1,316,793.38 plus interest US$ 36, 340.54, the litigation fees US$94,830.48, lost income during the arrest of the Vessel US $ 17 881.88, interest loss US$225,087.80 arising from security for the release the Vessel, security commissions US$11,722.85, and the attorney fees US$225,107.83 in the Australian litigation. Buyer appealed to the Shandong Superior People's Court. The court affirmed in a per curiam decision.

The Qingdao Maritime Court reasoned that both parties were in good faith when Buyer issued the steamship guarantee. There was no fraud in this case and the Seller's failure to get paid was caused by Issuer's refusal. The Guarantee was valid and binding upon both parties. Also, General Principles of the Civil Law of the People's Republic of China provided that the parties to a contract involving foreign interests may choose the law applicable to settlement of their contractual disputes, except as otherwise provided by law. Therefore, the limitation period should be 6 years under English law.

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